Today's America: politics trumps economics

Vince Dhimos
 
Throughout his campaign, Trump kept saying that Obama was responsible for America’s economic and military woes. Yet neither Obama nor Trump address(ed) the real underlying causes of these woes. Both pursued or pursue essentially the same policies, which ignore these causes. To put it bluntly, both pursue almost exclusively political, not economic and military policies. In Trump’s case, his policy is to appear to represent a contrast with Obama, where appear is the operative term. He is focused on what his voters think they want, not on solving their problems.
 
If you were playing chess against a master, and you knew little about strategy, it might occur to you to make moves based on those of your opponent. That is, since he is trying to defeat you, it might make sense to make only moves that were the “opposite” of his moves. For example, if he advanced his bishop 2 spaces to the right, then you would advance your bishop 2 spaces to your right on your side of the board to oppose him. Geometrically, your moves would be diametrically opposite to his. Clever, eh?
 
But since he is a chess master, the game played on this basis on your side would not last even a half-dozen moves before he put you in check.
 
No reasonable player would even try such a reckless strategy, and yet, we are seeing otherwise intelligent players in government doing essentially this with the US economy. The only difference is that we have had no economic chess masters in decades, nothing but amateurs with less than average common sense. The point is, however, that doing the opposite of one’s opponent is of no value and is a signal that you are not competent to play the game.
 
Traditional economic strategies are based on methods that are at least ostensibly designed to yield a positive economic result. The strategies used thus far are mostly based on crackpot theories and lies to the public regarding inflation, unemployment and the like indices, and are, predictably, leading to interminable growth of debt in the countries where they are tried. It is no wonder that old strategies are being ditched in favour of new ones. Thus far, no economist has dared to publicly postulate that a state can achieve prosperity simply by making its trading partners poor. After all, intuitively, one would expect a rich trading partner to offer benefits that a poor one could not. Nonetheless, we are seeing signs that impoverishment is an integral part of US economic policy. (Compare this with the official Chinese policy of lifting Third World countries out of poverty, as we described here).
 
Yet, in the wretched state of affairs that the US faces today, with debt growing like a cancer throughout the Western world (and with actual unemployment and inflation figures bearing little resemblance to the government’s optimistic politically motivated calculations, as clearly illustrated here for unemployment and here for inflation), political pied pipers and their constituents are proposing and trying Rube Goldberg schemes in a desperate effort to pull out of the havoc that government, the defence industry and central bankers have wrought against the hapless citizen. No successful candidate has ever gone up against these three all-powerful chief culprits and all have blamed lesser actors, many of them with no role at all in the largely self-inflicted disaster facing the US economy.
 
Such desperate moves are understandable to some extent. Yet no politician has arisen with a plan to oppose spendthrift government, the bankers who keep printing money like counterfeiters and the defence industry that foists unwarranted and unlimited spending on the citizens by means of lobbies and propaganda, ie, the never-ending story that the US, with a defence spending level several times higher than the second biggest defence spender, China, is under-gunned and needs more arms to defeat an enemy that has never even suggested that it wishes to do the West physical harm (and in fact, the most formidable “enemy” that the US has conjured up keeps urging Washington to come to the negotiating table and stop the arms race). This chart shows that the US spends more than the top 7 defence spenders in the world. Yet scare tactics by politicians and unscrupulous journos are designed to boost spending even more.
 
We should point out here that even under “weak” Obama, defence spending was several times higher than in No. 2 defence spending champion China. The US was vastly overextended even then and the sensible thing to do would be cutting to a level of no more than, say, twice the Chinese level.
 
But the US strategy is to fill the pockets of arms manufacturers in exchange for various favours from its lobbies, not defend against any enemies.
 
By contrast, in Russia, the military strategy is long-term and focused on a constant development of innovations in all fields. A quick look at a few descriptions of innovative Russian arms, as narrated by Putin himself, will convince you that the Russian strategy is a winner. However, Russian news sites keep reporting on even more-recent arms developments that the US news either ignores or simply can’t keep up with (see our Military Affairs section for frequent updates).
 
Economically, Russia has a sovereign debt that is only a fraction of GDP, vs the US debt which far exceeds GDP and never stops growing. Russia regularly pays down this debt. This is the key to its independence and also the reason for much of the anti-Russian sentiment in the US government and msm. The West is reduced to jeering.
 
We now live in an era where the dominant economic strategy is based on examining the moves of earlier administrations and simply doing the opposite of what they did. The most egregious offender of these past administrations was identified as Barack Obama, who of course, made mistakes, although not everything he did was a mistake and none of these mistakes had much bearing on the current dismal state of affairs.
 
The new strategy consists essentially of “undoing” every part of his strategy. Since Obama focused on negotiating and compromising with his trading partners and refrained from bullying them, the new rationale demands that this post-Obama era be characterized by a total lack of compromise or even protocol in economic intercourse (for instance, for unknown reasons, Trump recently called EC Commissioner Jean-Claude Juncker a “brutal killer”).  This has led in the Trump era to a series of tariffs imposed on goods that America used to manufacture but was undersold by China, Europe, Japan and other countries with superior strategies and more fortunate situations.
 
Thus, without considering the underlying reasons why the US was undercut pricewise and then taking measures on the domestic side to correct the imbalance, and without considering the well-known pitfalls of protectionism, Trump went about imposing tariffs of 25% on steel and 10% on aluminium, for example. Since this was done without looking at the entire chessboard of possibilities, the “opponent” countries, now treated as enemies, have started contemplating their own counter-tariffs. While the Trump tariffs were initially thought to affect at least $34 billion in imports from China, the Chinese have also drawn up a list of retaliatory tariffs in approximately that amount. The figures will certainly change and the Chinese stand to lose the most if the retaliation is only in terms of manufactured and farm goods. But we need to recall that China is the biggest holder of US Treasuries, and these are also imports—securities imports. The US relies on these security sales to foreign countries. Both China and Japan had already pared back their Treasuries holdings from historic highs prior to the US tariffs, and Russia recently sold off half of its holdings, and since all are targets of US tariffs, they now hold a mighty ace card, with China and Japan each holding over a trillion dollars in US debt. It is to their advantage to hold the Treasuries, but if angered, China and Japan could start jettisoning this debt. The amounts could offset the losses from the US tariffs and effectively counter the Trump tariffs. In that event, the US would have gained nothing by imposing the protective tariffs – except enemies, that is.
 
One consequence of the new tariffs is that Europe has moved closer to Russia. Jean-Claude Juncker, head of the European Union Commission, is now making overtures toward Russia, which could go so far as to affect the EU’s relationship with NATO. Thus what started out as a trade war may very well cause the US to lose the trust of valuable military allies. German and Austrian politicians are now acknowledging that Russia is not an enemy and something resembling friendship is developing with Russia.
 
If we consider that the US is only as strong as its alliances, it is hard to see how Trump is making America great.